Fitch Ratings Agency downgrades Italy citing political uncertainty

MILAN – Fitch Ratings Agency on Friday downgraded Italy’s credit rating to BBB+ from A- with a warning of a further downgrade, citing the uncertainty created by February’s inconclusive elections.

Fitch said the failure to come up with a clear winner makes “it unlikely that a stable new government can be formed in the next few weeks,” thereby harming prospects of further reforms.

The rating agency said Italy’s recession was one of the deepest in Europe, with an expected contraction of 1.8 per cent in 2013. Fitch added that the size of the country’s debt as a proportion of its economy is expected to peak at 130 per cent this year, higher than an earlier estimate of 125 per cent.

Talks on forming a new government aren’t expected to begin before March 20.

The Italian Finance Ministry responded with a statement highlighting the positives in the Italian economy, including a public sector deficit of 3 per cent of GDP last year, and noting that the political uncertainty “is part of a normal democratic process. “

The ministry expressed confidence in Italy’s ability to find political solutions and “therefore continue the ongoing reform process.” It noted that Premier Mario Monti’s caretaker government remains in place in the meantime.